Yr1 The International Economy

Question 1

PART 1

Answer 1

THE BALANCE OF PAYMENTS

Question 2

What is the main gov objectives linked to balance of payment?

Answer 2

Maintain a satisfactory balance of payment

Question 3

Definition of balance of payments?

Answer 3

A record of all of the currency flows in and out of a country in a particular time period

Question 4

Definition of trade deficit?

Answer 4

Imports > exports

Question 5

Definition of balance of trade?

Answer 5

Difference between imports and exports and goods and services

Question 6

Definition of trade surplus?

Answer 6

Exports > imports

Question 7

What are the 3 things included in the balance of payments + definition of each?

Answer 7

1. Current account
   - trade of goods in and out countries e.g. debit//credit
2. Capital account
   - movement of money for investment purposes
3. Financial account
   - included direct investment, portfolio investment , reserve assets

Question 8

What are the 4 part of the current account + definition?

Answer 8

1. Trade in goods
2. Trade in services
3. Primary income
   - investment from abroad + remote working
4. Secondary income
   - money contributions e.g. EU, aid, grant

Question 9

What is the equation for a circular economy linked to the 3 types of account?

Answer 9

Current = capital + financial

Question 10

What would cause a current account deficit?
1. Demand side
2. Supply side

Opposite for account surplus

Answer 10

1. • strong domestic growth
   • recession overseas
   • strong exchange rate (SPICED)
2. • low investment
   • low productivity
   • high relative inflation
   • high unit labour cost
   • poor quality/ reliability
   • depletion of resources